UK: Funding IP litigation In Scotland

Last Updated: 1 November 2016
Article by Michael Street

Working with SMEs and start-ups on their intellectual property (IP) strategy, I often find that clients can be concerned about the prospect of large corporations stealing and exploiting their ideas. With stories of significant patent disputes between tech giants regularly in the headlines, many ask me why they should protect their IP if they cannot afford to enforce it against a large corporation?

Earlier this month, the Scottish Government published its Legislative Programme for 2016-17 which includes the Expenses and Funding of Civil Litigation Bill. According to the Scottish Government, "the Bill is an important part of the Scottish Government's commitment to making the civil justice system more accessible, affordable and equitable. It will introduce measures to make the costs of civil action more predictable, to extend the funding options for pursuers..." This is likely to be good news for Scotland's businesses.

Litigation is almost always a last resort for businesses, not just because of the costs, but also because of the uncertainty it creates and the unwanted publicity it can attract. Careful planning from the start can help prevent a court case further down the line. Take the admittedly extreme example of a start-up company which has made an invention relating to a technologically simple, generally universal consumer product. The company may be concerned that one or more corporations may quickly copy the invention and flood the market in many countries with products incorporating the invention. What advice would I give to a client like this?

In the first instance, discussions of a commercial nature with a potential customer, supplier, partner or investor should be conducted under the terms of a written Non-disclosure Agreement (NDA). However, a NDA should not be seen as a substitute for filing a patent application before holding any such discussions. A patent is a monopoly right which is granted on a country-by-country basis. It may be enforced after grant to prevent a third party – such as a competitor – from performing one or more infringing activities such as manufacturing, importing or selling an infringing product in the country or countries concerned without the patent owner's consent.

If a business with a pending patent application notices another party infringing the patent rights they are applying for, or if they think infringement is imminent, they should consider accelerating the patent application process in order to secure the grant of the patent(s) in the country or countries concerned as soon as possible.

The deterrent effect on a large corporation of a robust clearly infringed patent should not be under-estimated. General Counsel to a large corporation understand the seriousness of the consequences for their corporation if a robust clearly infringed patent is asserted against them and may prefer to settle, rather than escalate, a dispute. If no settlement is reached and Alternative Dispute Resolution (ADR) also fails or is deemed inappropriate, it may be necessary to bring an action for patent infringement in the courts as a last resort.

If the Expenses and Funding of Civil Litigation Bill delivers improved access to litigation in Scotland as intended, this may help reassure SMEs and start-ups that they can take on large corporations if they infringe their IP rights in Scotland. In particular, the Bill will include provisions to 'introduce sliding caps for success fee agreements in ... civil actions and will allow damages-based agreements to be enforceable by solicitors'.

If SMEs and start-ups still consider the cost of litigation to be prohibitive, before-the-Event (BtE) IP insurance may have a role to play. If BtE insurance is not obtained, a "no win no fee" agreement such as a Speculative Fee Arrangement (SFA) or a Damages-Based Agreement (DBA) may make it easier for a start-up company to bring infringement proceedings in Scotland, especially if the patent is considered to be robust and clearly infringed.

Under an SFA, a claimant is only required to pay a solicitor's legal fees if litigation is successful. If litigation is successful, an additional success fee is charged as a percentage of the legal fees. The claimant may also purchase After-the-Event (AtE) IP insurance to address the risk of having to pay the other side's costs in the event of an unfavourable outcome. Under a DBA, a solicitor would not charge a fee should the case be lost, but the solicitor would charge a proportion of any damages recovered in the event of success. Third party funding for litigation may also be considered, for example funding for litigation from a direct competitor of the infringing corporation.

This article originally appeared in The Scotsman and can be viewed at www.scotsman.com/news/opinion/it-s-going-to-get-easier-to-protect-your-valuable-patents-1-4238511.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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